After all, once you do the math, that only amounts to $600 a year—which means it would take 17 years before you even crack the $10,000 mark.

When you look at it that way, you may think, "What's the point in squirreling away such a small amount for a big savings goal like retirement, when my modest contribution can't possibly make much of a dent?"

What you're not taking into account, however, is the power of compound growth.

"It's the process of letting the money that you're earning—whether through interest or growth in the underlying investment—compound on top of itself," says Karen Lee, a Certified Financial Planner™ based in Atlanta. "So it's not just what you save, but the earnings on top of what you save."

Of course, how much accrues in added earnings all depends on the type of savings vehicle you choose—and the timeframe by which you need to access that money.

Want to retire in 20 or 30 years? Then parking your nest egg in a low-interest savings account, for instance, may not be the best avenue for growth.

Advertisement

"A savings or money market account [is typically used for] safety and liquidity—traditionally for things like an emergency fund or saving for a short-term purchase," Lee says. "But if your time horizon is long enough, it makes sense to consider saving in a market-type investment for the potential for greater growth."

To show you what this could look like, we decided to do a little exercise and run the numbers on the compound growth potential of investing $50 each month in a savings account; a money market account; a brokerage account invested in index funds; and a 401(k), with a 50% company match.

As you can see, the larger and further away your savings goal is, the more you may want to consider putting that monthly $50 into an investment vehicle—a strategy known as dollar-cost averaging—rather than save it in an interest-bearing account.

"[Dollar-cost averaging] is when you put money into an investment on a predetermined schedule," Lee explains. "The idea is to take advantage of the up-and-down movement in the stock market. So when share prices are higher, you buy fewer shares—and conversely, when the prices are lower, you buy more shares [with your dollar amount]."

Advertisement

This strategy can be particularly helpful if you have decades to go before you reach your retirement goal, because it enables you to stay the course through market cycles to keep building your nest egg—hopefully with the added help of an employer-sponsored 401(k) match.

But even if you don't have access to a company match, it's still worth it to consider participating in a company 401(k) plan, because the pretax contributions come directly out of your paycheck—making saving a no-brainer.

"Automating savings is the key for most people, because they may not have the discipline to put that $50 a month away," Lee says.

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. LearnVest, Inc., is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other's products, services or policies.